Financial Crime World

Asset Recovery Procedures Take Effect in Iceland

Reykjavik, Iceland - September 1st marks the effective date of the Act on Recovery and Resolution of Credit Institutions and Investment Firms, number 70/2020. This legislation aims to safeguard financial stability by protecting insured deposits, investors’ assets, and vital company operations.

Key Provisions

  • The Central Bank of Iceland will take charge of resolution procedures for credit institutions and investment firms.
  • The Act applies to ten credit institutions in Iceland, with no investment firms currently falling under its scope.
  • Resolution Authorities will assess the solvency of these institutions, prepare recovery plans, and execute resolution procedures as necessary.

Measures to Achieve Recovery Goals

  • Establish a bridge institution to take over assets and liabilities
  • Sell operations or units from an institution in trouble
  • Split up assets and transfer them to an asset management vehicle
  • Demand credit institutions meet minimum requirements for own funds and eligible liabilities (MREL)

Central Bank’s Role

  • The Bank will assess the resolvability of affected institutions and prepare recovery plans for those not subject to conventional winding-up proceedings.
  • Credit institutions falling under the scope of the Act are currently preparing recovery plans, which will inform the Central Bank’s decisions on institution-specific MRELs.

Resolution Fund Established

  • A separate department, the Resolution Fund, has been established within the Depositors’ and Investors’ Guarantee Fund (DIGF) to finance resolution proceedings in accordance with recovery plans.
  • The fund is expected to be financed through fees charged to credit institutions in 2021 and beyond.

EU Directive Implementation

  • The passage of the new Act incorporates EU Directive 2014/59/EU into Icelandic law, implementing provisions centring on recovery plans and timely intervention in case of financial shocks.

Next Steps

  • Financial undertakings, the Icelandic Financial Services Association, and other stakeholders are encouraged to familiarize themselves with the contents of the Act.
  • Queries can be directed to skilavald@sedlabanki.is.

The Central Bank encourages all interested parties to take advantage of this new legislation to ensure the continued stability and security of Iceland’s financial system.